The Tax-Free Savings Account (TFSA) isn’t only for short-term savings goals. Sure, the account is a perfect option to store some cash for an upcoming purchase, like a down payment on a house. But that doesn’t mean the TFSA doesn’t have the potential to be an excellent long-term wealth generator.
Tax-free withdrawals make the TFSA an ideal choice for short-term savers. For long-term investors, though, it’s the ability to earn tax-free compounded gains that make the account stand out.
In addition, Canadians can choose from a variety of funds to hold within their TFSA, including stocks.
With that in mind, I’ve put together a well-diversified basket of three Canadian stocks.
If you’ve got some contribution room available in your TFSA, I’d strongly suggest having these three companies on your radar.
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Shopify
Not many Canadian stocks have outperformed Shopify (TSX: SHOP) since it joined the TSX in 2015. It’s been a volatile ride for shareholders, but there’s been no shortage of market-beating returns.
As the business has grown into a $180 billion company, growth has understandably slowed. That being said, Shopify is nowhere near done outperforming the market’s returns.
Shares are up a market-crushing 130% over the past five years. And that’s even with the tech stock still trading more than 30% below all-time highs from late 2021.
All that said, I wouldn’t bank on Shopify not being a volatile investment anytime soon. As long as the tech stock continues to deliver market-crushing returns, I’d be bracing for a bumpy ride.
With the stock still a ways away from setting new highs, now could be an opportunistic time for a long-term investor to be loading up.
Bank of Nova Scotia
A high-yielding dividend stock is the perfect choice to balance out a growth stock like Shopify.
If a top dividend is what you’re after, the Canadian banks are a perfect place to start. The Big Five all pay top yields and own some of the longest payout streaks on the TSX.
At a 6% dividend yield, Bank of Nova Scotia (TSX: BNS) is currently the highest-yielding of the major Canadian banks. Bank of Nova Scotia has also been paying a dividend to its shareholders for close to 200 consecutive years.
A slow-growing bank stock like Bank of Nova Scotia certainly won’t be the most exciting company to own. But during volatile market periods, you’ll be glad to have that steady stream of passive income.
Northland Power
Long-term investors shouldn’t be overlooking the beaten-down renewable energy sector. It’s been a disappointing past several years for renewable energy stocks but that doesn’t mean the future isn’t bright.
Excluding dividends, shares of Northland Power (TSX: NPI) are down more than 50% since the beginning of 2021. Prior to that, Northland Power shareholders had been accustomed to earning market-beating returns in addition to earning passive income through the company’s dividend.
At today’s discounted price, Northland Power’s dividend is yielding 6%.
Investors who are bullish on the long-term rise in renewable energy consumption should not be on the sidelines today. As a bull myself, I strongly believe that it’s only a matter of time before the leaders in this space are back to their market-beating ways.
